Ramsay places its trust in the ACCC

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Ramsay Health Care could be forced to sell at least three more
hospitals to secure the competition regulator's approval of its
$1.4 billion buy-out of Affinity Health.

And in an unusual undertaking, Ramsay has told the Australian
Competition and Consumer Commission it has "absolute discretion" to
force the sale of even more hospitals from either the Affinity or
Ramsay portfolios.

The details, contained in a series of undertakings made to the
ACCC relating to Ramsay's decision to sell 14 of the 53 hospitals
in the buy-out back to Affinity's owners, underline the sensitivity
of a deal creating Australia's biggest private hospital
operator.

Announcing the deal, Ramsay chief executive Pat Grier said one
or two more hospitals might have to be sold for the deal to win
regulatory approval.

But Ramsay has told the commission it will divest the 75-bed
Warners Bay, the 120-bed South Eastern and the 124-bed Valley
hospitals if required.

And having already undertaken to operate the Affinity business
separately until gaining ACCC approval, Ramsay has also promised to
"divest such other hospitals" - both Affinity's and Ramsay's - as
identified by the ACCC "in its absolute discretion".

It is understood the commission considers this unusual.
Companies tend to seek resolution of competition concerns before
proceeding with acquisitions.

Ramsay approached the ACCC shortly before announcing the buy-out
on Thursday, asking to be allowed to sign the deal and settle any
competition concerns later.

The ACCC agreed and called for market submissions. The sale of
any more hospitals will also come under the commission's
scrutiny.

Credit Suisse First Boston analyst Moira Daw said Ramsay's
explanation for the choice of hospitals to be sold back to
Affinity's owners was "not convincing".

"In our view, it looks like part of doing the deal was to
provide the private equity players with an attractively priced
package of hospitals to be traded again at some future time," she
wrote to clients.

While other investors expressed concern Ramsay paid nearly
double what Affinity paid Mayne for the hospitals only 18 months
ago, analysts welcomed the deal, which secures control of 26 per
cent of the private hospital market.

Citigroup Smith Barney and Credit Suisse First Boston analysts
raised their recommendations on the stock to buy. Merrill Lynch
also rates the stock as a buy.

Amid the heavy market sell-off on Friday, Ramsay's banker,
Goldman Sachs JBWere, was unable to fully allocate the $97 million
renounceable entitlement offer even though the deal got a positive
reception. Major shareholder Paul Ramsay's stake was diluted and a
stock overhang was created.

An institutional book-build today is expected to mop up the
extra stock.